Is a Republican Congress Good for Stocks?

Most experts believe the Republicans will at least gain control of the House of Representatives on this coming election day. Some believe the GOP might even take control of the Senate. We wanted to test your opinion to see what our readers think the repercussions might be for stocks. Is a Republican victory good for stocks?

The movement of the Dow since late August seems to say it is. The stock market has always favored Republicans, or so it seems anyway. After all, they are tax friendly and pro-business, but after all that has occurred under Republican rule, is the President right in pleading with Americans not to put the bad drivers back behind the wheel? If the economy fell into such mess under Republican rule and the treasury budget deficit grew into a monstrous state, then perhaps old rules no longer apply? I believe the market will reward Republican victory, if it has not already, and will penalize a Democratic Party win. But we want to know what you think.

Is a Republican Congressional Victory Good for the Stock Market Anymore?

DEBATE TOPIC ARCHIVE

(Relevant Tickers: NYSE: PIZ, NYSE: PIE, NYSE: PDP, NYSE: DIA, NYSE: SPY, NYSE: NYX, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: IWM, NYSE: TWM, NYSE: IWD, NYSE: SDK, NYSE: ICE, Nasdaq: QQQQ, Nasdaq: HTOAX, Nasdaq: HTOTX, Nasdaq: HTOBX, Nasdaq: JTCIX, Nasdaq: JTCNX, Nasdaq: JTCAX, Nasdaq: QQQQ, NYSE: GS, NYSE: MS, NYSE: BAC, NYSE: JEF, NYSE: C, NYSE: JPM, NYSE: DB, NYSE: CS, NYSE: STD, NYSE: MGH, Nasdaq: TROW)

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Procter & Gamble (NYSE: PG) Looks a Safe Bet

Greek Pick: PG

Despite drags on sales and pressure on margins, this stockpile of American staple brands is making market share inroads across the globe and driving steady growth with a decent dividend to boot. In our estimation, growth is underestimated and Procter & Gamble's P/E ratio overstated as well. Thus, in my estimation, NYSE: PG shares look to provide a 15% return on capital over the next year. But keep your eye on petrochemical prices and commodity pressures as the key risk to a PG investment.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers: NYSE: CL, NYSE: KMB, NYSE: AVP, NYSE: EL, NYSE: ENR, NYSE: ACV, NYSE: NUS, NYSE: REV, Nasdaq: IPAR, Nasdaq: RDEN, NYSE: BTH, Nasdaq: FHCO, Nasdaq: UG, Nasdaq: PARL, Nasdaq: FACE, AMEX: CAW, Nasdaq: SYMC, NYSE: S, NYSE: TER, NYSE: IP, Nasdaq: ESRX, Nasdaq: ATX, NYSE: ABD, NYSE: ACE, Nasdaq: ACXM, NYSE: AEA, Nasdaq: AFFX, NYSE: AEM, Nasdaq: AKAM, NYSE: AYE, Nasdaq: ALGT, NYSE: AIQ, Nasdaq: AHGP, Nasdaq: ARLP, NYSE: AB, NYSE: AMX, Nasdaq: ARII, NYSE: ASI, Nasdaq: ARGN, NYSE: AMP, Nasdaq: ARRS, NYSE: ARW, NYSE: AHL, NYSE: AIZ, NYSE: AUO, NYSE: ADP, NYSE: AVB, NYSE: AVY, NYSE: BEZ, NYSE: BYI, Nasdaq: BBVA, NYSE: BBD, NYSE: BEC, Nasdaq: BOKF, Nasdaq: BOLT, NYSE: BWA, Nasdaq: BPFH, NYSE: BDN, NYSE: EAT, Nasdaq: BVSN, NYSE: BKI, Nasdaq: CACI, Nasdaq: CDNS, NYSE: CWT, NYSE: CP, NYSE: CAJ, NYSE: CMO, Nasdaq: CAVM, NYSE: CDR, NYSE: CLS, Nasdaq: CETV, Nasdaq: CITZ, NYSE: ZNH, NYSE: CHH, NYSE: CHT, Nasdaq: CINF, Nasdaq: CMCSA, NYSE: CTV, NYSE: CYH, NYSE: COP, NYSE: OFC, NYSE: CCI, NYSE: DEL, NYSE: DB, NYSE: DHT, NYSE: DPS, NYSE: DRE, Nasdaq: DYAX, Nasdaq: DRCO, NYSE: ELN, NYSE: EOC, NYSE: EEQ, Nasdaq: WIRE, Nasdaq: ELGX, NYSE: EGN, NYSE: ENI, AMEX: EGT, Nasdaq: ENTR, NYSE: EFX, NYSE: ETH, Nasdaq: EEFT, Nasdaq: EXAS, Nasdaq: DAVE, Nasdaq: FFCH, Nasdaq: FLEX, NYSE: FLS, NYSE: FMC, Nasdaq: FXCB, NYSE: GD, NYSE: GMR, Nasdaq: GLCH, NYSE: GG, Nasdaq: GOLF, Nasdaq: GSIC, Nasdaq: GTCB, NYSE: HGR, NYSE: HTS, NYSE: HMA, NYSE: HLX, Nasdaq: HERO, Nasdaq: IACI, Nasdaq: ISIG, Nasdaq: ISSI, Nasdaq: IDCC, Nasdaq: IFSIA, NYSE: ISH, Nasdaq: IRBT, Nasdaq: ITRI, NYSE: JMP, Nasdaq: JBSS, NYSE: KYO, NYSE: LVS, NYSE: LAZ, NYSE: LM, NYSE: LAD, Nasdaq: LTFD, Nasdaq: LOGI, Nasdaq: LOGM, Nasdaq: LOJN, Nasdaq: LOOP, NYSE: LSI, NYSE: MPX, Nasdaq: MKTX, NYSE: MSO, NYSE: MHH, NYSE: MWV, Nasdaq: MDAS, NYSE: MTH, Nasdaq: MERU, Nasdaq: MORN, Nasdaq: NWK, Nasdaq: NICE, NYSE: NSC, NYSE: NVO, Nasdaq: ODFL, Nasdaq: OMCL, Nasdaq: ORLY, Nasdaq: OFIX, NYSE: OC, Nasdaq: PFCB, NYSE: PTI, Nasdaq: PRAA, Nasdaq: POWI, NYSE: PX, Nasdaq: PROV, Nasdaq: PEG, Nasdaq: RDWR, NYSE: RA, Nasdaq: RWCB, NYSE: RNR, NYSE: RYL, Nasdaq: SGMO, NYSE: SAP, Nasdaq: SVVS, NYSE: SEE, NYSE: SSW, Nasdaq: SIGI, NYSE: SXT, NYSE: SCI, Nasdaq: SMED, NYSE: SHG, Nasdaq: SFLY, Nasdaq: SIFI, Nasdaq: SLAB, Nasdaq: SPIL, NYSE: SHI, NYSE: SKM, NYSE: SKX, Nasdaq: SCKT, NYSE: SOA, Nasdaq: FIRE, NYSE: SO, Nasdaq: SRCL, NYSE: RGR, NYSE: SXL, Nasdaq: SUSQ, NYSE: SYA, Nasdaq: TASR, NYSE: TER, NYSE: ALL, NYSE: EML, NYSE: JNY, NYSE: TMO, Nasdaq: TOMO, NYSE: TMK, Nasdaq: CLUB, NYSE: TRH, NYSE: TRN, Nasdaq: TQNT, NYSE: TYL, NYSE: UMC, Nasdaq: UVSP, NYSE: UPI, Nasdaq: USMO, Nasdaq: VALE, Nasdaq: VMED, Nasdaq: VRTU, NYSE: V, Nasdaq: VISN, NYSE: WAB, Nasdaq: WFD, NYSE: WHR, NYSE: WLL, NYSE: WSH.

Procter & Gamble (NYSE: PG)

12 Month Total Return Target: +15%
Today's Closing Price: $63

This American icon sells products including Gillette Razors, Tide Detergent, Pantene Shampoo, Crest Toothpaste and other products that fill your cabinets. The company is boosting growth via expansion and market share gains into India, China and other emerging and developed markets. Its staple businesses and brands, and clever operational strategy, make it a must own for many institutional portfolio managers most of the time.

Procter & Gamble (NYSE: PG) reported quarterly results today that exceeded Wall Street's views. PG shares settled after spiking on the open, but moved higher into the close. The company reported EPS from continuing operations grew 5.2% in its quarter ended September. It's EPS from continuing operations, which exclude a sold pharmaceutical business, reached $1.02, versus $0.97 in the year ago period. The result exceeded P&G's guidance range of $0.97 to $1.01 and beat Wall Street's view for $1.00, based on Thomson Reuters data.

Procter & Gamble's sales were up 2% in the quarter, to $20.1 billion, falling short of the analysts' consensus for $20.2 billion. P&G made up for the top-line miss though with organic sales growth of 4%; this excludes factors such as acquisitions, divestitures and currency changes. Organic growth was driven by "broad-based volume and market share gains," according to P&G. Volume was up 8%. The company recorded growth in all major geographic regions and in five of its six business segments. P&G also noted market share gains in 13 of 17 countries and in 17 of its 23 billion dollar brands. This is what keeps analysts on board, as the company is making inroads for growth, and also positioning for extra lift out of economic trough.

Several factors are coming into play with regard to P&G's operating environment. Economic recession typically spares consumer staple sector shares, as investors flock to them for their more sure sales of consumer necessities like razors and soap. However, as anyone in a bind will tell you, the use of razors, deodorant, and other so-called necessities will decrease when money needs to be saved badly enough. Thus, even consumer staples can be affected by declines in economic activity, but certainly to a lesser degree than businesses that earn revenues from activities like eating out, travel and the purchase of luxuries.

P&G's sales came under pressure this quarter due to: geographies of operations and product mix (-2%); pricing (-1%); and unfavorable foreign exchange (-3%). Furthermore, Procter & Gamble shed 70 basis points on its gross margin line, due to rising commodity costs. The resin for the plastic bottles it packages its goods within and the paper pulp it uses to produce its paper goods like Charmin and Bounty products have seen steep increase. The company's peers are reporting the same issues, with Kimberly-Clark (NYSE: KMB) posting a 19% earnings decline last week on rising commodity costs. However, the company is not expected to push through costs to consumers, except via new and "improved" product line options for less price sensitive clientele. Instead, the company's CEO, Bob McDonald, says P&G will make up for it in cost savings. In its most recent quarter, P&G cut 60 basis points off its SG&A expense line on improved productivity, lower forex costs, and reduced overhead spending.

P&G continues to be a cash cow, money making machine, producing $2.5 billion in cash flow last quarter and $1.9 billion in free cash flow. The company forecast Q4 EPS from continuing operations will increase 4-10%, to $1.05 to $1.11 per share. That compares to analysts' expectations for $1.11, but P&G looks to have a record of conservative corporate estimation and solid execution. According to Yahoo Finance, PG has beaten the Street four out of the last five quarters. The company set its FY 11 (June) guidance at $3.91 to $4.01, or up 11-14%.

The stock currently trades at a P/E ratio of 15.7X the high end of its FY 11 guidance range, which, it seems to us, it is likely to attain (given its history). Before adjustment for today's result, analysts were looking for $3.97 for the full fiscal year; that will increase at least a couple points to make up for the most recent quarterly result. The P/E ratio sits above the 10% growth forecast for the company's EPS this fiscal year, but PG also offers shareholders a dividend of 3%. Considering the fact that management has likely understated growth, and the fact that this is a half year forecast, not full year, the stock looks worth owning for a seemingly reliable 15%+ return over the next 6-12 months in my view.

My greatest concern though, and what I would suggest prospective investors keep an eye on, is increasing pressure on petrochemical prices and commodities generally. I expect rising resource demand from emerging markets and economic stability-to-growth to again pressure commodity prices, and potentially pricing generally (yes inflation, while the Fed focuses on deflation). Thus, war with Iran is also a bad thing for PG (and everybody else), since it would hike petrochemicals in a hurry. So, with that risk/return analysis I leave you with the rest of the day's EPS reporters.



This article should also interest NYSE: PG peers: Colgate-Palmolive (NYSE: CL), Kimberly-Clark (NYSE: KMB), Avon (NYSE: AVP), Estee Lauder (NYSE: EL), Energizer (NYSE: ENR), Alberto-Culver (NYSE: ACV), Nu-Skin Enterprises (NYSE: NUS), Revlon (NYSE: REV), Inter Parfums (Nasdaq: IPAR), Elizabeth Arden (Nasdaq: RDEN), Blyth (NYSE: BTH), Female Health (Nasdaq: FHCO), United Guardian (Nasdaq: UG), Parlux Fragrances (Nasdaq: PARL), Physicians Formula (Nasdaq: FACE), CCA Industries (AMEX: CAW).

The remainder of the day’s EPS results emanated from: Symantec (Nasdaq: SYMC), Sprint Nextel (NYSE: S), Teradyne (NYSE: TER), International Paper (NYSE: IP), Express Scripts (Nasdaq: ESRX), A.T. Cross (Nasdaq: ATX), ACCO Brands (NYSE: ABD), ACE Limited (NYSE: ACE), Acxiom (Nasdaq: ACXM), Advance America Cash America (NYSE: AEA), Affymetrix (Nasdaq: AFFX), Agnico-Eagle Mines (NYSE: AEM), Akamai (Nasdaq: AKAM), Allegheny Energy (NYSE: AYE), Allegiant Travel (Nasdaq: ALGT), Alliance Healthcare (NYSE: AIQ), Alliance Holdings (Nasdaq: AHGP), Alliance Resource Partners (Nasdaq: ARLP), AllianceBernstein (NYSE: AB), America Movil (NYSE: AMX), American Railcar (Nasdaq: ARII), American Safety Insurance (NYSE: ASI), Amerigon (Nasdaq: ARGN), Ameriprise Financial (NYSE: AMP), Arris Group (Nasdaq: ARRS), Arrow Electronics (NYSE: ARW), Aspen Insurance (NYSE: AHL), Assurant (NYSE: AIZ), AU Optronics (NYSE: AUO), Automated Data Processing (NYSE: ADP), Avalonbay Communities (NYSE: AVB), Avery Dennison (NYSE: AVY), Baldor Electric (NYSE: BEZ), Bally Technologies (NYSE: BYI), BBVA (Nasdaq: BBVA), Banco Bradesco (NYSE: BBD), Beckman Coulter (NYSE: BEC), BOK Financial (Nasdaq: BOKF), Bolt Technology (Nasdaq: BOLT), BorgWarner (NYSE: BWA), Boston Private (Nasdaq: BPFH), Brandywine Realty Trust (NYSE: BDN), Brinker International (NYSE: EAT), Broadvision (Nasdaq: BVSN), Buckeye Technologies (NYSE: BKI), CACI International (Nasdaq: CACI), Cadence Design (Nasdaq: CDNS), California Water Service (NYSE: CWT), Canadian Pacific Railway (NYSE: CP), Canon (NYSE: CAJ), Capstead Mortgage (NYSE: CMO), Cavium Networks (Nasdaq: CAVM), Cedar Shopping Centers (NYSE: CDR), Celestica (NYSE: CLS), Central European Media (Nasdaq: CETV), CFS Bancorp (Nasdaq: CITZ), China Southern Airlines (NYSE: ZNH), Choice Hotels (NYSE: CHH), Chunghwa Telecom (NYSE: CHT), Cincinnati Financial (Nasdaq: CINF), Comcast (Nasdaq: CMCSA), CommScope (NYSE: CTV), Community Health Systems (NYSE: CYH), ConocoPhillips (NYSE: COP), Cornerstone Bancshares (Nasdaq: CSBQ), Corporate Office Properties (NYSE: OFC), Crown Castle (NYSE: CCI), Cullin/Frost Bankers (NYSE: CFR), Deltic Timber (NYSE: DEL), Deutsche Bank (NYSE: DB), DHT Holdings (NYSE: DHT), Dr. Pepper Snapple (NYSE: DPS), Duke Realty (NYSE: DRE), Dyax (Nasdaq: DYAX), Dynamics Research (Nasdaq: DRCO), Elan Corp. (NYSE: ELN), Endesa Chile (NYSE: EOC), Enbridge Energy (NYSE: EEQ), Encore Wire (Nasdaq: WIRE), Endologix (Nasdaq: ELGX), Energen (NYSE: EGN), Enersis (NYSE: ENI), Entertainment Gaming Asia (AMEX: EGT), Entropic Communications (Nasdaq: ENTR), Equifax (NYSE: EFX), Equity Residential (NYSE: EQR), Ethan Allen (NYSE: ETH), Euronet (Nasdaq: EEFT), EXACT Sciences (Nasdaq: EXAS), Famous Dave’s (Nasdaq: DAVE), First Financial (Nasdaq: FFCH), First Bancorp Michigan (Nasdaq: FBMI), FirstService (Nasdaq: FSRV), Five Star Quality Care (AMEX: FVE), Flagstar Bancorp (NYSE: FBC), Flextronics (Nasdaq: FLEX), Flowserve (NYSE: FLS), FMC (NYSE: FMC), FMC Tech (NYSE: FTI), Fox Chase Bancorp (Nasdaq: FXCB), General Dynamics (NYSE: GD), General Maritime (NYSE: GMR), Gleacher (Nasdaq: GLCH), Goldcorp (NYSE: GG), Golfsmith (Nasdaq: GOLF), Grupo Aeroportuario del Pacifico (NYSE: PAC), GSI Commerce (Nasdaq: GSIC), GTC Biotherapeutics (Nasdaq: GTCB), Hanesbrands (NYSE: HBI), Hanger Orthopedic (NYSE: HGR), Hatteras Financial (NYSE: HTS), Health Management Associates (NYSE: HMA), Helix Energy (NYSE: HLX), Hercules Offshore (Nasdaq: HERO), Hess (NYSE: HES), Hill-Rom (NYSE: HRC), Hudson Highland (Nasdaq: HHGP), Hudson Valley Holding (Nasdaq: HUVL), IAC (Nasdaq: IACI), Insignia Systems (Nasdaq: ISIG), Integrated Silicon Solution (Nasdaq: ISSI), InterDigital (Nasdaq: IDCC), Interface (Nasdaq: IFSIA), International Coal Group (NYSE: ICO), International Shipholding (NYSE: ISH), IPC (Nasdaq: IPCM), iRobot (Nasdaq: IRBT), ITC Holdings (Nasdaq: ITC), Itron (Nasdaq: ITRI), JMP Group (NYSE: JMP), John B. Sanfilippo & Son (Nasdaq: JBSS), Kadant (NYSE: KAI), Kirby (NYSE: KEX), Kyocera (NYSE: KYO), Las Vegas Sands (NYSE: LVS), Lazard (NYSE: LAZ), LeCroy (Nasdaq: LCRY), Legacy Bancorp (Nasdaq: LEGC), Legg Mason (NYSE: LM), Lincoln Electric (Nasdaq: LECO), Lithia Motors (NYSE: LAD), Littlefield (Nasdaq: LTFD), Logitech (Nasdaq: LOGI), Logmein (Nasdaq: LOGM), LoJack (Nasdaq: LOJN), LoopNet (Nasdaq: LOOP), LSI (NYSE: LSI), ManTech (Nasdaq: MANT), Marine Products (NYSE: MPX), MarketAxess (Nasdaq: MKTX), Martha Stewart Living (NYSE: MSO), Mastech (NYSE: MHH), MDC Partners (Nasdaq: MDCA), MeadWestVaco (NYSE: MWV), MedAssets (Nasdaq: MDAS), Meritage Homes (NYSE: MTH), MERU Networks (Nasdaq: MERU), Methanex (Nasdaq: MEOH), Monarch Financial (Nasdaq: MNRK), Morningstar (Nasdaq: MORN), Ness Tech (Nasdaq: NSTC), Net Servicos (Nasdaq: NETC), Network Equipment Technologies (Nasdaq: NWK), New York Community Bancorp (NYSE: NYB), Newport (Nasdaq: NEWP), NICE Systems (Nasdaq: NICE), Noranda Aluminum (NYSE: NOR), Norfolk Southern (NYSE: NSC), Northrop Grumman (NYSE: NOC), Novo Nordisk (NYSE: NVO), Office Depot (NYSE: ODP), Owens-Illinois (NYSE: OI), Old Dominion Freight (Nasdaq: ODFL), Omnicell (Nasdaq: OMCL), Open Text (Nasdaq: OTEX), Orchids Paper (AMEX: TIS), O’Reilly Automotive (Nasdaq: ORLY), Orthofix International (Nasdaq: OFIX), Owens Corning (NYSE: OC), P.A.M. Transportation (Nasdaq: PTSI), PF Chang’s (Nasdaq: PFCB), Patni Computer (NYSE: PTI), Penn Virginia (NYSE: PVG), Penn Virginia Resources (NYSE: PVR), Pinnacle Data Systems (AMEX: PNS), Plexus (Nasdaq: PLXS), Portfolio Recovery Associates (Nasdaq: PRAA), Power Integrations (Nasdaq: POWI), Praxair (NYSE: PX), Provident Financial (Nasdaq: PROV), PSE&G (Nasdaq: PEG), QCR Holdings (Nasdaq: QCRH), Quantum (NYSE: QTM), Quidel (Nasdaq: QDEL), Radware (Nasdaq: RDWR), RailAmerica (NYSE: RA), Range Resources (NYSE: RRC), Realty Income (NYSE: O), Redwood Capital (Nasdaq: RWCB), RenaissanceRe (NYSE: RNR), Rollins (NYSE: ROL), RPC (NYSE: RES), Ryland Group (NYSE: RYL), SanGamo Biosciences (Nasdaq: SGMO), SAP (NYSE: SAP), Savvis (Nasdaq: SVVS), SCANA (NYSE: SCG), Sealed Air (NYSE: SEE), Seaspan (NYSE: SSW), Selective Insurance (Nasdaq: SIGI), Sensient (NYSE: SXT), Service Corp. (NYSE: SCI), SFN Group (NYSE: SFN), Sharps Compliance (Nasdaq: SMED), Shinhan Financial (NYSE: SHG), Shutterfly (Nasdaq: SFLY), SI Financial (Nasdaq: SIFI), Silicon Laboratories (Nasdaq: SLAB), Siliconware Precision Industries (Nasdaq: SPIL), Simsbury (Nasdaq: SBTB), Sinopec Shanghai Petrochemical (NYSE: SHI), SJW (NYSE: SJW), SK Telecom (NYSE: SKM), Skechers USA (NYSE: SKX), Socket Mobile (Nasdaq: SCKT), Solutia (NYSE: SOA), Sourcefire (Nasdaq: FIRE), Southern Co. (NYSE: SO), Spectranetics (Nasdaq: SPNC), Stericycle (Nasdaq: SRCL), Sturm Ruger (NYSE: RGR), Sunoco Logistics (NYSE: SXL), Superior Energy (NYSE: SPN), Susquehanna Bancshares (Nasdaq: SUSQ), Symetra Financial (NYSE: SYA), Taser International (Nasdaq: TASR), TC Pipelines (Nasdaq: TCLP), Teradyne (NYSE: TER), The Allstate (NYSE: ALL), The Eastern Co. (NYSE: EML), The Jones Group (NYSE: JNY), The Medicines (Nasdaq: MDCO), Thermo Fisher Scientific (NYSE: TMO), TomoTherapy (Nasdaq: TOMO), Tompkins Financial (AMEX: TMP), Torchmark (NYSE: TMK), Tower Bancorp (Nasdaq: TOBC), Town Sports (Nasdaq: CLUB), Transatlantic Holdings (NYSE: TRH), Trinity Industries (NYSE: TRN), TriQuint Semiconductor (Nasdaq: TQNT), Tyler Tech (NYSE: TYL), UMB Financial (Nasdaq: UMBF), Unisource Energy (NYSE: UNS), United Bancorp (Nasdaq: UBCP), United Microelectronics (NYSE: UMC), Universal Health (NYSE: UHS), Universal Stainless and Alloy (Nasdaq: USAP), Univest (Nasdaq: UVSP), Uroplasty (NYSE: UPI), USA Mobility (Nasdaq: USMO), Vale (Nasdaq: VALE), Virgin Media (Nasdaq: VMED), ViroPharma (Nasdaq: VPHM), Virtusa (Nasdaq: VRTU), Visa (NYSE: V), VisionChina Media (Nasdaq: VISN), Vitamin Shoppe (NYSE: VSI), Wabtec (NYSE: WAB), Washington Real Estate (NYSE: WRE), Washington Trust (Nasdaq: WASH), Wausau Paper (NYSE: WPP), Westfield Financial (Nasdaq: WFD), Whirlpool (NYSE: WHR), Whiting Petroleum (NYSE: WLL), Willis Group (NYSE: WSH), Wintrust Financial (Nasdaq: WTFC), and WNS (NYSE: WNS).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Home Price Dynamics & Paradox

Real Estate

The S&P Case Shiller and the FHFA home price data for September offered a varied message. Where Case Shiller showed month-over-month price decline, FHFA showed modest rise. The reason becomes clear as one understands what markets the two barometers measure. Where the two agreed was in their relative irrelevance, while measuring the month of August at the end of October. That said, we think you will get something out our take on things.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

(Tickers: NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: PNC, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT, AMEX: TWO, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD)

Home Price Dynamics & Paradox

S&P Case Shiller's Home Price Indices reflected year-over-year price increase, but the month-to-month measurement offered a more important guide and told a different story. Case Shiller's 10-City Index showed 2.6% year-to-year increase in metropolitan home prices, and its 20-City Index reflected 1.7% growth. However, the seemingly solid news clouded over more important trends. For instance, 17 of the 20 MSAs measured produced slower rates of annual growth versus those recorded in July. Worse yet, 15 MSAs showed price decline against July. In aggregate, the month-to-month comparisons of the 10-City and 20-City measures showed home prices declining at rates of 0.1% and 0.2%, respectively.

The greater decline in the 20-City Index, and the slower growth in its annual rate of price increase, seem to say the larger MSAs or bigger cities are retaining value better. That is because the largest cities are included in both indices, while the smaller are excluded from the 10-City measure. So if we get variance when removing the smaller cities, as the 10-City Index does, we see what impact the larger and smaller metro areas play in activity. Get it?

My good friend and trader Steve Koufakis, God rest his soul, would warn me that weakness in the euro and European pockets would hurt New York City real estate in the near future. We had heated debates on it, as I would argue for increased Asian demand offsetting the Europeans' empty pockets. It's clear that international demand for big city real estate helps to boost demand for limited preferential locations and helps the average price level as well. Where there is more demand, there will be higher pricing, at least when holding supply constant. In the case of limited territory, you'll get a squeeze on prices. Also, potential international buyers come from a small pool of affluent and wealthy, where economic trough is not felt as significantly. However, we would expect cost constraints on international corporations and other organizations to limit their expansion into US cities of interest, and thus limit demand from relative international sources.

Back to Point: While the month-to-month change stood out, even the yearly comparison is getting sketchy now, with 12 of 20 MSAs reporting negative annual rates of home price change. In other words, the real estate market looks to be entering double-dip territory, which Greek readers should be well-prepared for by now. Prices hit bottom in April of 2009, and so if August prices are not matching up favorably against the prior year period, then we are pretty close to that old watermark.

S&P's Blitzer calls the latest activity a "bouncing around the bottom," but we expect he will eventually be reporting the second dip lower after the fact. Home prices are about where they were in late 2003, but the long-term chart seems to say prices are still above natural levels. We have Alan Greenspan and his low rate policy, along with greed, to blame for this housing price loft.

So, if normalized pricing is somewhere near 2000 levels, which is what the trend line seems to say, then we have a lot lower to go before stabilization. The 20-City composite is down about 28.1% from mid-year 2006 levels, though it's up 6.7% from the April 2009 trough. Given the current credit and unemployment conditions, prices seem to have no driving factor for lift other than demographics, which are pretty significant (Douville makes good points on this). Still, a thumbnail sketch, based on the trend line at S&P's report, seems to say prices could theoretically fall another 33% to the normal historic long-term trend line (2000 levels). However, I think it would take a special catalyst to cause such a shock to the illiquid housing market. This just seems to point toward a stale to sad real estate pricing environment for the medium term, on average. I'm looking for prices to move another 10-20% lower, with the possibility of 33% under extreme conditions. That's a wild number I know, but just look at the charts.

"...it looks to me like the latest life in real estate came on two factors, government stimulus and real estate junkie fix needs."

Basically, it looks to me like the latest life in real estate came on two factors, government stimulus and real estate junkie fix needs. Stock investors, speculators and analysts like me are always looking for the next catalyst for increase or decrease, and so goes the story for real estate investors I think. Thus, once the smallest sign of life and stability showed, they got to buying and drove the latest lift (well the ones with money left anyway).

As reality sets in now, expect it to be depressing. The areas where there was greatest lift should now deflate just as quickly, but keep in mind that there are solid reasons areas like San Francisco, San Diego and Washington were on the quick lift, and those remain. Expect broad-based correction, as the pumped national marketplace benefited from housing catalysts over the last decade.

FHFA reported a different story than S&P, showing month-over-month price increase in August. So what gives then?

FHFA reported a 0.4% monthly price increase in August. July's decline was revised lower though, to 0.7%, from 0.5%. FHFA also reported another difference to S&P's data, with the year-to-year comparison showing a 2.4% decline, where S&P still shows yearly price increases. The difference in opinion must center around the fact that the FHFA monthly index is calculated using purchase prices of houses backing mortgages that have been sold to or guaranteed by Fannie Mae or Freddie Mac. These homes likely have an average value that falls below the value of S&P Case Shiller's aggregate. Thus, these homes have a higher occurrence of foreclosure, affecting the yearly price comparisons.

Also, lower priced homes (at the extreme), perhaps, did not benefit as much from the free capital markets that drove housing. This makes logical sense, since the appeal of the neighborhoods where these homes exist would not generally create special demand on its own. Housing did best along the sunbelt, around the wonders of our world, both natural and manmade; thus near the sea, lakes and golf courses. Prices are higher then on the month-to-month comparison of FHFA lower priced properties, because they must have less room for decrease. Temporary sample issues could be at play as well…

FHFA's data seems to say prices would fall to January 2003 levels to reach the most solid footing. I believe this again suggests that lower priced homes benefited less from the housing bubble.

In conclusion, the reports confirm my longstanding view that housing prices are due to take another step lower, given that step is occurring now. The absence of government stimulus; the struggling labor situation; and given tighter credit conditions, all make the case for it. There should be no surprise, but there should be concern, because as home equity value and perceived wealth are damaged, so are consumer confidence and spending. So as we conclude this analysis of housing prices, we should note that the National Association of Realtors (NAR) just reported more timely pricing information on the large existing home marketplace. That data showed that September prices (vs. August by S&P and FHFA) fell. The NAR reported the national median existing-home price for all housing types was 2.4% lower than the prior year period. Confirmed then, and timely this time!



Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Home Sales in September 2010?

Better than Expected?

Are these words we should get used to hearing around the real estate industry? Probably not yet, but as we roll off of the industry lows set this past July, many of the housing data points are offering relatively good news. Today's reported Existing Home Sales for the month of September did the same.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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Existing Home Sales

Driven by single-family home sales, Existing Home Sales were reported increased 10% to an annual pace of 4.53 million in September. While that's a sweet improvement, the latest measure still reflects a sad state of current affairs for housing. July's sales activity dropped off a cliff, you see, free falling 27% after the First-Time Homebuyers Tax Incentive deadline passed. The last two months have offered increase from there, but we are still well off the sales pace seen in June (5.26 million). Of course, that month was injected with a hit of government drugs, or tax stimulus, so we would look for something less groovy here anyway.

Economists were fooled though, as they had set their average mark at 4.3 million existing home sales for September. The result was therefore a tepid positive news bit, given the still soft absolute level of activity. Sales were 19.1% short of the 5.6 million annual rate recorded in last year's period. Plus, there are still plenty signs of trouble in housing, including the blood-letting foreclosure flow (excluding the effects of the robo-foreclosure moratorium). Credit is not easy to come by either, and creditworthy borrowers are even harder to find. Furthermore, unemployment is still stagnant and sad, keeping most jobless from even considering home purchase, but mortgage rates are in record low territory. That's a positive right? Well, a good part of the reason they're so low is due to the depressed level of demand for mortgages now. Remember that supply/demand stuff from economics class; I know, I slept through it too.

The National Association of Realtors (NAR) reported that according to Freddie Mac (OTC: FMCC.OB), the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.35 percent in September, from 4.43 percent in August. Looking back a year, the rate was 5.06 percent in September 2009. Housing prices are also accommodating, and getting cheaper, but that's another sign of a tough marketplace and thus a mixed news offering. According to the NAR, the national median existing-home price for all housing types was 2.4% lower than the prior year period. A key factor in the still falling price of a home is the fact that distressed properties accounted for 35 percent of sales in September, compared with 34 percent in August and 29 percent in the prior year period.

Benefiting from the increase in sales activity, existing home inventory fell by 1.9%, to 4.04 million homes. That is a 10.7 month supply of homes at the latest sales pace, down from the 12 month inventory level seen in August.

Regionally speaking, existing-home sales in the Northeast increased 10.1 percent, to an annual pace of 760,000 in September; that is still down 20.8 percent from September 2009. The median price in the Northeast was $239,200, which is 1.4 percent below a year ago. Existing-home sales in the Midwest jumped 14.5 percent in September to a level of 950,000 but are 26.4 percent below a year ago. The median price in the Midwest was $139,700, down 5.2 percent from September 2009. In the South, existing-home sales rose 10.6 percent to an annual pace of 1.77 million in September but are 14.9 percent lower than September 2009. The median price in the South was $149,500, down 2.6 percent from a year ago. Existing-home sales in the West increased 5.0 percent to an annual level of 1.05 million in September but are 16.7 percent below a year ago. The median price in the West was $213,600, which is 4.9 percent lower than September 2009.

The Chief Economist of the NAR, Lawrence Yun, says real estate is recovering, and should rise from here. This is a widely shared view, though we see a more stagnant state dragging on for a while longer. I also share the viewpoint with a handful of economists that home prices are in double-dip territory now, and moving lower. As this occurs and the news hits the presses, it will only act to discourage buyers further. With current crippled credit conditions in place, and economic growth tempered by a heavy unemployment drag, I cannot see robust recovery. Furthermore, post elections, we see a less aggressive government effort set to stymie economic growth another year or so.

Thus, home prices could decline another 10% to 20%. I believe special conditions would have to fall into place for a 20% decline, including an ugly war with Iran and skyrocketing transportation and energy costs. You will not hear this view expressed in many other places, and yet the event is a strong possibility. So, the only property I would be buying now is a distressed one that offers me a 20% cushion to value. How you like me now?



Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Premarket Stock News 10-25-10

Stocks were up across most of Europe and Asia heading into the US open Monday morning. That's thanks to a favorable G-20 determination regarding currency trading, and signs that China might respect the world's wishes somewhat for a fair playing field. That said, emerging nations would like to see less capital creation from the West. The Treasury Secretary is making an unscheduled visit to China and so the market will continue to pivot on this trade issue in the near-term. The day's premarket stock news also highlights Existing Home Sales data, which is on tap for Monday morning release, and a slew of earnings reports as well.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative Tickers: Nasdaq: AMGN, NYSE: TXN, NYSE: ROP, NYSE: PCL, NYSE: LO, NYSE: RSH, Nasdaq: SHLM, NYSE: AAN, NYSE: ACH, Nasdaq: ACGL, NYSE: AI, NYSE: AEC, Nasdaq: ATHR, NYSE: BXS, NYSE: BOH, NYSE: BAS, Nasdaq: BEAV, NYSE: BWP, NYSE: BYD, NYSE: COG, Nasdaq: CRNT, Nasdaq: CYOU, NYSE: CHE, Nasdaq: CHFC, Nasdaq: CKSW, Nasdaq: CVTI, NYSE: CR, NYSE: HXM, NYSE: DDR, Nasdaq: DRIV, Nasdaq: DCOM, Nasdaq: DSPG, Nasdaq: EWBC, NYSE: EW, Nasdaq: ENBD, NYSE: FNB, Nasdaq: FDEF, Nasdaq: FIBK, NYSE: HRS, Nasdaq: HSTM, Nasdaq: HTLF, NYSE: HXL, Nasdaq: HFFC, Nasdaq: HTCO, Nasdaq: INSU, Nasdaq: IDTI, NYSE: IVZ, Nasdaq: ISBC, Nasdaq: KALU, Nasdaq: KVHI, Nasdaq: LKFN, NYSE: LTC, NYSE: LUX, NYSE: MHO, NYSE: MAS, Nasdaq: MTXX, Nasdaq: MBVT, Nasdaq: MIPS, Nasdaq: NARA, Nasdaq: NATI, Nasdaq: NBTB, NYSE: NS, NYSE: NVE, NYSE: OLN, NYSE: OMI, Nasdaq: PLXT, NYSE: PPD, Nasdaq: PRGX, Nasdaq: RDCM, NYSE: RGA, Nasdaq: RCII, Nasdaq: STBA, Nasdaq: SILC, NYSE: SLG, Nasdaq: SOHU, Nasdaq: SUPG, NYSE: SNV, NYSE: TMX, Nasdaq: TUES, Nasdaq: UCTT, NYSE: UTL, Nasdaq: VECO, Nasdaq: VRTX, Nasdaq: VLTR, NYSE: WRB, Nasdaq: WSBC, NYSE: YZC, Nasdaq: ZIXI, Nasdaq: ZRAN.

Premarket Stock News

The G-20 pledged its intentions to allow market determinants to drive currency values, and Asian currencies are on the rise as a result. The Chinese Renminbi appreciated along with other emerging market currencies into Monday, as signs and hopes are placed on China accommodating the G-20 communiqué to some degree. However, all eyes will be on Tim Geithner has he makes an unscheduled trip to China now to visit with Vice Premier Wang Qishan to discuss financial relations between the US and China. What weighs on this meeting may be more than most of us can even fathom. This is Geithner's greatest responsibility, and could determine the tone of his legacy.

Existing Home Sales

There is one economic report on tap for the day. Look for the 10:00 AM release of September's Existing Home Sales data. Economists are looking for the annual pace of sales to have increased to 4.3 million, up from 4.13 million in August. August also showed modest increase over July, but the aggregate level of sales remains depressed. The last reading of housing inventory stood at 11.6 months in August, based on the same month's sales pace.

There's a glimmer of hope on housing, given last week offered improved data, with Housing Starts gaining 0.3% in September, to an annual pace of 610,000 units. Economists had been looking for Starts of just 580,000. Also, the Housing Market Index showed homebuilder confidence gained slightly, to 16, from 13. Mortgage rates also seemed to find a point of late (record lows) where they might actually inspire activity.

DC Doings

Several speakers are set to produce sound-bites Monday. First and foremost, the Federal Reserve Chairman is scheduled to make an address at a joint Fed/FDIC gathering on "Mortgages and the Future of Housing Finance." Look for the FDIC Chairwoman, Shelia Bair to keep herself busy Monday, since she'll also be joining Congressman Barney Frank and Paul Volcker in assessing the impact of the Dodd-Frank financial regulation legislation.

New York Fed President William Dudley and Kansas City Fed Chief Thomas Hoenig will address the economy. Finally, Robert Khuzami, SEC Director of Enforcement, will talk on the topic of financial revision at Georgetown University.

The insider-trading trial of Galleon Hedge Fund founder Raj Rajaratnam starts in New York.

Stock News Drivers

Look for EPS results from the likes of Amgen (Nasdaq: AMGN), Texas Instruments (NYSE: TXN), Roper Industries (NYSE: ROP), Plum Creek Timber (NYSE: PCL), Lorillard (NYSE: LO), Radio Shack (NYSE: RSH), A. Schulman (Nasdaq: SHLM), Aaron's (NYSE: AAN), Aluminum Corp. of China (NYSE: ACH), Arch Capital (Nasdaq: ACGL), Arlington Asset Investment (NYSE: AI), Associated Estates Realty (NYSE: AEC), Atheros Communications (Nasdaq: ATHR), BancorpSouth (NYSE: BXS), Bank of Hawaii (NYSE: BOH), Basic Energy Services (NYSE: BAS), BE Aerospace (Nasdaq: BEAV), Boardwalk Pipeline Partners (NYSE: BWP), Boyd Gaming (NYSE: BYD), Cabot Oil & Gas (NYSE: COG), Ceragon Networks (Nasdaq: CRNT), Changyou.com (Nasdaq: CYOU), Chemed (NYSE: CHE), Chemical Financial (Nasdaq: CHFC), ClickSoftware Technologies (Nasdaq: CKSW), Covenant Transport (Nasdaq: CVTI), Crane (NYSE: CR), Homex Development (NYSE: HXM), Developers Diversified Realty (NYSE: DDR), Digital River (Nasdaq: DRIV), Dime Community Bancshares (Nasdaq: DCOM), DSP Group (Nasdaq: DSPG), East West Bancorp (Nasdaq: EWBC), Edwards Lifesciences (NYSE: EW), Emirates NBD (Nasdaq: ENBD), FNB Corp. (NYSE: FNB), First Defiance Financial (Nasdaq: FDEF), First Interstate Bancsystem (Nasdaq: FIBK), Harris (NYSE: HRS), HealthStream (Nasdaq: HSTM), Heartland Financial USA (Nasdaq: HTLF), Hexcel (NYSE: HXL), HF Financial (Nasdaq: HFFC), HickoryTech (Nasdaq: HTCO), Insituform Technologies (Nasdaq: INSU), Integrated Device Technology (Nasdaq: IDTI), Invesco (NYSE: IVZ), Investors Bancorp (Nasdaq: ISBC), Kaiser Aluminum (Nasdaq: KALU), KVH Industries (Nasdaq: KVHI), Lakeland Financial (Nasdaq: LKFN), LTC Properties (NYSE: LTC), Luxottica Group (NYSE: LUX), M/I Homes (NYSE: MHO), Masco (NYSE: MAS), Matrixx Initiatives (Nasdaq: MTXX), Merchants Bancshares (Nasdaq: MBVT), MIPS Technologies (Nasdaq: MIPS), Nara Bancorp (Nasdaq: NARA), National Instruments (Nasdaq: NATI), NBT Bancorp (Nasdaq: NBTB), NuStar Energy (NYSE: NS), NV Energy (NYSE: NVE), Olin Corp. (NYSE: OLN), Owens & Minor (NYSE: OMI), PLX Technology (Nasdaq: PLXT), PrePaid Legal (NYSE: PPD), PRGX Global (Nasdaq: PRGX), Radcom (Nasdaq: RDCM), Reinsurance Group of America (NYSE: RGA), Rent-A-Center (Nasdaq: RCII), S&T Bancorp (Nasdaq: STBA), Silicom (Nasdaq: SILC), SL Green Realty (NYSE: SLG), SOHU.com (Nasdaq: SOHU), SuperGen (Nasdaq: SUPG), Synovus Financial (NYSE: SNV), Telefonos de Mexico (NYSE: TMX), Tuesday Morning Corp. (Nasdaq: TUES), Ultra Clean Holdings (Nasdaq: UCTT), Unitil (NYSE: UTL), Veeco Instruments (Nasdaq: VECO), Vertex Pharmaceuticals (Nasdaq: VRTX), Volterra Semiconductor (Nasdaq: VLTR), W.R. Berkley (NYSE: WRB), Wesbanco (Nasdaq: WSBC), Yanzou Coal Mining (NYSE: YZC), Zix Corp. (Nasdaq: ZIXI) and Zoran (Nasdaq: ZRAN).



Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Same-Store Sales Are Fading Away

In the beginning of this year, we said investors should expect same-store sales growth rates to deteriorate as the year progressed, which would seem counter intuitive. However, even while the economy finds some traction, sales are increasingly matching against more normalized comparables and finding a higher bar to surpass.

"Same-store sales" is a term coined to describe retailers' sales from stores that have been opened for a year or more. This tracks organic sales, versus the sales contribution from the addition of new retail locations. It is a useful tool to measure the true health of a franchise, as it captures its popularity and success in garnering store traffic and sales in a competitive marketplace.

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Same-Store Sales Are Fading Away

We say "more normalized comparables" above because early year comps were marked against perhaps some of the weakest per capita consumer activity in generations. As you'll recall, March of 2009 marked the bottom point for stocks, and inspired serious panic in the hearts of investors and consumers alike. Only a few brave souls were able to hold their noses, cover their eyes, and buy stocks that spring, and they benefited greatly from that courage. This spring's store sales were compared against that historically soft span, which made for a low bar to leap over this year. Thus, when yearly comparisons of same-store sales ran up to a rate of 3% to 4% earlier this year, we warned investors to temper their enthusiasm and wait for later days to get a true reading of consumer spending.

The International Council of Shopping Centers (ICSC) reported this week that same-store sales for the week ended October 16 fell 0.7%. That might seem bad enough, but weekly sales can track up or down against the prior week on noisy factors like large storms or broad cold spells. Instead, what is troubling retailers and investors now is the year-over-year comparisons they have seen of late.

In the latest period, year-over-year sales increased 1.7%, the slowest rate of growth seen in five months. The latest measure compares against a 3.6% rate reported as recent as this September 25th. Redbook, another consumer group, also measures year-over-year growth, and while it marked a faster pace of 2.7% in the latest period, its data trend line matches the downward slope of ICSC and reinforces concerns. We have noted a streak of slower sales over the last few weeks in particular.

Some may want to point toward auto sales and last year's Cash for Clunkers program as a reason for variation. However, ICSC excludes vehicle sales from its data. In any event, the Clunkers program concluded last August, and so would not play a role in October comparisons. September might be a different story, since the program likely pulled sales forward.

The current period marks a lull in shopping activity, falling in between the back-to-school stimulant and Black Friday, the start of the holiday season. Still, we are marking data against last year, and so seasonal patterns carry the same impact to each year's particular period, except when small calendar variation exists. That said, we may see higher Black Friday sales than last year, given the depth and length of this recession.

With 17% of the American workforce under-employed and near 10% unemployed, about half of which have been that way for more than 27 weeks, you can expect a greater number of Americans will be bargain hunting this year, if they shop at all. Perhaps there will be a shopping moratorium? Here is a nice idea: Let's give kisses, hugs and good deeds this year, to mark the merry season with the spirit of love that birthed it, versus the spirit of commercialism that has since overtaken it.

If holiday shopping is hotter on Black Friday and the Monday that follows, known as Cyber Monday, investors might be wise to again wait and see before banking on retail gains. Cyber Monday marks the first day back to work after Thanksgiving, and it has produced a promotional blitz for web retailers over the last decade. Apparently, many of you are still digesting your turkey that Monday and feeling a little lazy; thus, there is an extraordinary amount of online shopping and general perusing that occurs that day. There are also a ton of online sales to take advantage of, and so Cyber Monday has become a staple of American culture. More shopping now occurs on Cyber Monday than on Black Friday, or this year will mark the takeover. We hope you will also visit us on that lazy day.

In any event, consumers and investors will likely stick with discounters and retailers with creative deals and marketing schemes this year. Keep your eye out for those, and let us know; maybe we will find a stock to splurge on together. I think we will finally get a real feel for how bad things are this year. In the past, folks shouldered the season with savings and spirit, but Americans are hurting even worse this year and are not sure when they will be on solid footing again. Thus, I suspect this will mark the low point for consumer spending for this cycle on a per capita basis, at least until Iran, nuclear terrorism and general chaos rule the day. Hold up your eggnog and let's toast to: May that day never come.



This article should prove interesting to investors in NYSE: PIR, NYSE: ETH, Nasdaq: HOFT, NYSE: HD, NYSE: LOW, Nasdaq: AAPL, NYSE: BBY, NYSE: LTD, NYSE: CHS, NYSE: ANN, NYSE: GPS, NYSE: M, NYSE: JCP, NYSE: JWN, NYSE: TJX, NYSE: KSS, Nasdaq: COST, NYSE: TGT, NYSE: WMT, Nasdaq: WTSLA, Nasdaq: HOTT, NYSE: AEO, NYSE: ARO, NYSE: ANF, NYSE: SAK, NYSE: TIF, NYSE: TLB, NYSE: LL, Nasdaq: BLDR, NYSE: FO, NYSE: LEG, NYSE: TPX, NYSE: AYI, NYSE: LZB, Nasdaq: SCSS, NYSE: ZZ, NYSE: FBN, NYSE: NTZ, Nasdaq: SHLD, NYSE: DDS, Nasdaq: BONT, Nasdaq: CPWM, Nasdaq: BKRS, Nasdaq: BEBE, NYSE: BKE, Nasdaq: CACH, Nasdaq: CMRG, Nasdaq: CATO, NYSE: CBK, Nasdaq: CTRN, NYSE: PSS, Nasdaq: DEST, Nasdaq: DBRN, NYSE: DSW, Nasdaq: FINL, NYSE: FL, Nasdaq: GYMB, NYSE: GES, NYSE: JCG, NYSE: JNY, Nasdaq: JOSB, NYSE: NWY, NYSE: JWN, NYSE: MW, Nasdaq: SYMS, Nasdaq: PLCE.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Apple Pie (Nasdaq: AAPL)

"We still have a few surprises left for the remainder of this calendar year."
Steve Jobs

Those words alone have strategically carried AAPL shares since its mixed earnings release. We think it is going to take more prescient insight into the consumer electronics future and further amazing execution by the company's management team for Apple's pie, or its portion of the consumer electronics market share, to grow. Likewise, the value of its stock might seem attractive, but it incorporates these great expectations to some extent, setting it up for disappointment if it cannot deliver. What are you betting on?

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative Tickers: Nasdaq: AAPL, Nasdaq: DELL, Nasdaq: GOOG, Nasdaq: RIMM, NYSE: HPQ, Nasdaq: MSFT, Nasdaq: AMZN, NYSE: NOK, NYSE: GLW, NYSE: MOT, NYSE: ALU, NYSE: HRS, Nasdaq: TLAB, NYSE: SNE, NYSE: PHG, NYSE: PC, NYSE: HIT, NYSE: ST, NYSE: HUB-B, NYSE: HAR, Nasdaq: GNRC, Nasdaq: DTSI, NYSE: FN, NYSE: TCH, NYSE: LXU, Nasdaq: UEIC, NYSE: VPG, NYSE: EMC, NYSE: BAC, Nasdaq: ALTR, NYSE: KO, Nasdaq: ISRG, NYSE: FRX, NYSE: AOS, NYSE: AEP, Nasdaq: ASRV, Nasdaq: ASTE, NYSE: BMI, NYSE: BK, Nasdaq: BBND, NYSE: BSX, Nasdaq: CREE, Nasdaq: CYBI, Nasdaq: DTLK, Nasdaq: DEAR, NYSE: DRH, NYSE: DPZ, Nasdaq: EFSC, Nasdaq: ESBF, Nasdaq: FBCM, Nasdaq: FLXS, Nasdaq: FLTTE, Nasdaq: FFIC, AMEX: FRS, Nasdaq: FSII, Nasdaq: FULT, Nasdaq: GILD, NYSE: GS, Nasdaq: HBHC, NYSE: HOG, Nasdaq: HA, NYSE: HDB, NYSE: HNP, Nasdaq: HUBG, NYSE: ITW, NYSE: JNJ, Nasdaq: JNPR, Nasdaq: KOSS, NYSE: LAB, NYSE: LMT, Nasdaq: MANH, Nasdaq: MRTN, Nasdaq: MBWM, NYSE: MTG, Nasdaq: MICC, NYSE: MLI, Nasdaq: NBTF, NYSE: OXY, Nasdaq: ONAV, NYSE: OMC, NYSE: PH, NYSE: BTU, Nasdaq: PWOD, Nasdaq: PVSW, NYSE: PII, Nasdaq: PSYS, Nasdaq: PULB, Nasdaq: RCRC, Nasdaq: RNST, NYSE: SLM, Nasdaq: SONC, Nasdaq: SFST, NYSE: STT, Nasdaq: STSA, NYSE: SYK, NYSE: SVU, NYSE: TPX, NYSE: MNI, NYSE: NYT, NYSE: TUP, Nasdaq: TWIN, NYSE: UNF, NYSE: URI, NYSE: UNH, NYSE: WCN, NYSE: WFT, Nasdaq: WABC, NYSE: WDC, Nasdaq: WSCI, Nasdaq: YHOO.

Apple Pie (Nasdaq: AAPL)

Apple reported its fiscal fourth quarter results Monday night and they were stellar indeed. However, a great company does not always make for a great stock investment. I hear you! I hear you! Even while the shares were down Tuesday, they have gained 47% this year. I give you that, but Apple's time in the sun must come to an end (or at least slow up a bit), as it is governed by Moore's Law.

For those of you unaware, Moore's Law, strictly defined, governs the rate of change in the technological development in computer hardware and semiconductors. Generally speaking, new technology is rendered obsolete in a matter of a couple years, by the rule of law. Well, modern times and slang have stretched the law to cover the rate of innovation in all high technology.

Apple has proven a disruptive force under the leadership of its iconic CEO Steve Jobs. Upon his return to the company, Apple took right to turning the consumer electronics world upside down again. The iPod marked the first breakthrough of the AJ period (After Jobs' return). Apple became the driving force in the mobile music market (do you still own a Walkman?), and dominates MP3 player rivals like Sony (NYSE: SNE) and SanDisk (Nasdaq: SNDK) today. I mention SanDisk because I like their cheap basic player a ton (less than $50, but don't tell my girlfriend who got it for her birthday – let's see if she reads me).

Apple sold 9.05 million iPods in its fiscal quarter ended September 25, reported Monday night. But the trend in the iPod market foreshadows the future I see for Apple. While those sales were huge, they were down 11% from the year ago period. That's due to intensified competition from players like SanDisk.

The company was able to hand the baton of growth over though to another blockbuster breakthrough, the second of the AJ period, the iPhone. iPhone sales were up 91% this quarter (over prior year), to 14.1 million units. That is characteristic of the disruption Apple created in the mobile market, turning basic mobile phones obsolete (except for a shrinking segment of the marketplace – for low priced), killing Motorola's business (NYSE: MOT) and putting Nokia (NYSE: NOK) on the defensive. Apple also blew established smart phone players like Palm nearly out of business, before its rescue by Hewlett-Packard (NYSE: HPQ). Research in Motion (Nasdaq: RIMM), with its BlackBerry models, now sits behind Apple in smart phone sales. RIM sold 12.1 million phones (2 million less than Apple) in its most recent fiscal quarter, which the cocky Apple Inc. pointed out in its press release.

And not leaving good enough alone, the aggressive disruptor took on Amazon's (Nasdaq: AMZN) Kindle Book Reader (read us on the Kindle) in its third major move for the AJ period; this of course came with its introduction of the iPad computing tablet. Apple sold 4.19 million iPads in its fiscal fourth quarter. The iPad may also be putting coffee table books on the shelf as well, at least in Upper East Side dental offices.

Indeed, Apple's revenues soared 77% over the prior year quarter, to $20.343 billion. Its net profit rocketed 70%, and its diluted EPS climbed 67.5% (lower than profit on share dilution), to $4.64 a share. These do not only represent corporate records, but awesome growth due to the size of increase and given the absolute value of sales. Meanwhile, the company accomplished this growth while giving back ground in its profit margins. But this also hints at where I'm going with my argument, and my more critical than Wall Street's wondrous expectations for Apple.

Apple's iPad sales were a disappointment this quarter, believe it or not, as analysts were looking for 4.5 million unit sales or so. This sent the stock lower in the aftermarket Monday night, but only after recent weeks of skyrocketing above the $300 mark. Thus, even while it was down on Tuesday, investors who took first stake just a short time ago were still in the green. Analysts also have supported their own momentum based forecasts for Apple, and they will ride the stock until it crashes for the most part. Their higher ups are telling them not to fight the tide (trust me), and with bonus season near and job security slim on Wall Street, it does not pay to argue with your boss, for the sake of your pocket anyway (your soul's sake is another story).

The Future: A Rotting Apple?

Disruptive as it has been, and as cocky as it remains, Apple must continue to innovate in the amazing fashion it has in order for the company to continue to justify an above average industry valuation. Steve Jobs hinted at his expectation to do so in his statement we republished atop this article. He says Apple has more surprises in store for us this year. I think I know what Apple is working on, and if I'm right, he just might be ready to take the stock much higher. Still, unless Jobs has a standing deal in place with the devil, and even though he is by far the consumer genius of our times, the continuation of this epic tale gets harder and harder to extend with time.

As an analyst, I believed in incorporating this type of management value-add (in this case genius) into the valuation of a company and into the success rate expected from R&D spending, commensurate market share gains, and EPS growth. But there are limits, and Apple seems to be testing them. Some analysts seem to me inebriated by Apple's success and their own buy opinions. This and the market's chasing of the shares this week, offers clear cut sign of an inevitable and eventual disappointment. The higher you raise expectations, you see, the more difficult they become to achieve. Apple is approaching impossible levels, but it's not there just yet.

Apple's pie is being sliced up among its competitors, even as it takes from the whole. We have seen look-alikes pop up in each of its product segments, and while they may not all live up to Apple standards, they do find buyer interest at varying price points. As the competition gets closer to Apple, the pioneer is forced to reduce price, and thus the give backs in margins. The iPad might still be taking share from Amazon's Kindle, but at the same time, it is losing share to Dell and others. As the lives of Apple's products begin to resemble the iPod, the company (and stock) will come under increased pressure to reinvent the wheel again, and also reinvent another wheel. In other words, it must stay atop the markets it is currently shocking, and also enter new markets in disruptive fashion to keep growing at its fantastic pace and to maintain an above average valuation.

My hat is tipped to Apple's management team, though I do not own one Apple product (feel free to send me one to sample and review). Apple clearly is a cut above, as a company, but as a stock, today may not represent the most opportune time to take an interest. But that is not so clear either.

The iPod is maturing and the competition is catching up. The iPhone is cutting edge, but the gauntlet has been long thrown down, and the competition is impressive. Google (Nasdaq: GOOG) recently sold more units of its Android phones in a month than Apple sold iPhones. Finally, the latest product, the iPad, seems less disruptive than the others, and thus, looks destined to reign on top for a shorter span (more likely behind the Kindle), especially given product introductions by rivals Dell (Nasdaq: DELL) and Research in Motion (Nasdaq: RIMM). Though Steve Jobs got on Apple's conference call for the first time in two years, and said the rival products were too small. The fact that he even addressed them says something.

Apple's shares rose with purpose heading into the EPS release, and then sold off after it; a typical buy the rumor, sell the news scenario. The stock closed the day down 2.7%, but is in the hands of day traders now and is slightly higher a day later.

Apple's Valuation

With its mix of businesses, Apple does not really have a pure peer; HP gets close though. Its P/E ratio of about 22X its trailing EPS does not seem too expensive when compared to historic growth, nor does it rate too high above analysts' forecast growth of 19% for the next few years. The tentative P/E ratio against FY 11 is 17.3, but that will likely move lower as analysts adjust forecasts to account for recent data. On a P/E basis, the stock is priced above Hewlett-Packard (NYSE: HPQ), Dell (Nasdaq: DELL), Microsoft (Nasdaq: MSFT), and Research in Motion (Nasdaq: RIMM). However, its expected growth rate justifies the valuation premium. The only question is, how reliable is the growth forecast?

While the stock appears to be worth buying today, much depends on its ability to continue to innovate. This is what justifies the elevated valuation, and the only dynamic factor that can sustain it. So, if you are buying Apple now, you are really banking on Steve Jobs and his team's ability to continue its streak of reinvention. Can Apple, now the second largest stock in the S&P 500 Index (behind Exxon Mobil (NYSE: XOM), based on market capitalization, stay on top of the stock market hill? History tells us that it's hard to stay on top.

"...if my intuition is correct, Apple may be about to bite into a new pie, where its disruptive ways could help its stellar growth continue and its stock price rise further as well."

Apple's special valuation has my attention but does not scare the hell out of me, despite the company's size and the difficulty to grow from such a heavy base point. My intuition tells me the stock could give back some ground in the near term, on the absence of news. However, I believe Jobs and his statement about another surprise coming, and if my intuition is correct, Apple may be about to bite into a new pie, where its disruptive ways could help its stellar growth continue and its stock price rise further as well. Thus, I would be looking to enter on weakness that might come on some macro factor, and I would use technical help to find that entry point. My untrained technical analyst's eye (I'm a fundamental analyst) tells me that is probably somewhere between $280 and $300, and I see a solid basement floor at $260. The stock trades today near $312.

I wonder if Jobs has a holiday season announcement planned for his latest invention, as the period is clearly key to any new product introduction. Maybe it will be the driver for 2011's EPS growth, but he stated the surprise would be announced in this calendar year. The one thing you can count on is that AAPL's near-term share performance will be tied to it and the rest of its pie eating as well.



Article should interest investors in Apple (Nasdaq: AAPL), Dell (Nasdaq: DELL), Research in Motion (Nasdaq: RIMM), Hewlett-Packard (NYSE: HPQ), Microsoft (Nasdaq: MSFT), Amazon.com (Nasdaq: AMZN), Nokia (NYSE: NOK), Corning (NYSE: GLW), Motorola (NYSE: MOT), Alcatel-Lucent (NYSE: ALU), Harris (NYSE: HRS), Tellabs (Nasdaq: TLAB), Sony (NYSE: SNE), Philips (NYSE: PHG), Panasonic (NYSE: PC), Hitachi (NYSE: HIT), Sensata (NYSE: ST), Hubbell (NYSE: HUB.B), Harman (NYSE: HAR), Generac (Nasdaq: GNRC), DTS (Nasdaq: DTSI), Fabrinet (NYSE: FN), Technicolor (NYSE: TCH), LSB Industries (NYSE: LXU), Universal Electronics (Nasdaq: UEIC), Vishay Precision (NYSE: VPG).

The day's EPS included news from EMC Corp. (NYSE: EMC), Bank of America (NYSE: BAC), Altera (Nasdaq: ALTR), Coca-Cola (NYSE: KO), Intuitive Surgical (Nasdaq: ISRG), Forest Labs (NYSE: FRX), A.O. Smith (NYSE: AOS), American Electric Power (NYSE: AEP), AmeriServ Financial (Nasdaq: ASRV), Astec Industries (Nasdaq: ASTE), Badger Meter (NYSE: BMI), Bank of New York Mellon (NYSE: BK), BigBand Networks (Nasdaq: BBND), Boston Scientific (NYSE: BSX), Cree (Nasdaq: CREE), Cybex International (Nasdaq: CYBI), Datalink (Nasdaq: DTLK), Dearborn Bancorp (Nasdaq: DEAR), Diamondrock Hospitality (NYSE: DRH), Dominos Pizza (NYSE: DPZ), Enterprise Financial Services (Nasdaq: EFSC), ESB Financial (Nasdaq: ESBF), FBR Capital Markets (Nasdaq: FBCM), Flexsteel Industries (Nasdaq: FLXS), Flint Telecom (Nasdaq: FLTTE), Flushing Financial (Nasdaq: FFIC), Frischs Restaurants (AMEX: FRS), FSI International (Nasdaq: FSII), Fulton Financial (Nasdaq: FULT), Gilead Sciences (Nasdaq: GILD), Goldman Sachs (NYSE: GS), Hancock Holding (Nasdaq: HBHC), Harley-Davidson (NYSE: HOG), Hawaiian Holdings (Nasdaq: HA), HDFC Bank (NYSE: HDB), Huaneng Power (NYSE: HNP), Hub Group (Nasdaq: HUBG), Illinois Toolworks (NYSE: ITW), Johnson & Johnson (NYSE: JNJ), Juniper Networks (Nasdaq: JNPR), Koss (Nasdaq: KOSS), LaBranche (NYSE: LAB), Lockheed Martin (NYSE: LMT), Manhattan Associates (Nasdaq: MANH), Marten Transport (Nasdaq: MRTN), Mercantile Bank (Nasdaq: MBWM), MGIC Investment (NYSE: MTG), Millicom International (Nasdaq: MICC), Mueller Industries (NYSE: MLI), NB&T Financial Group (Nasdaq: NBTF), Occidental Petroleum (NYSE: OXY), Omega Navigation (Nasdaq: ONAV), Omnicom (NYSE: OMC), Parker Hannifin (NYSE: PH), Peabody Energy (NYSE: BTU), Penns Woods Bancorp (Nasdaq: PWOD), Pervasive Software (Nasdaq: PVSW), Polaris Industries (NYSE: PII), Psychiatric Solutions (Nasdaq: PSYS), Pulaski Financial (Nasdaq: PULB), RC2 Corp. (Nasdaq: RCRC), Renasant (Nasdaq: RNST), SLM Corp. (NYSE: SLM), Sonic (Nasdaq: SONC), Southern First Bancshares (Nasdaq: SFST), State Street (NYSE: STT), Sterling Financial (Nasdaq: STSA), Stryker (NYSE: SYK), Supervalu (NYSE: SVU), Tempur Pedic (NYSE: TPX), McClatchy (NYSE: MNI), The New York Times (NYSE: NYT), Tupperware (NYSE: TUP), Twin Disc (Nasdaq: TWIN), UniFirst (NYSE: UNF), United Rentals (NYSE: URI), UnitedHealth (NYSE: UNH), Waste Connections (NYSE: WCN), Weatherford International (NYSE: WFT), WestAmerica Bancorp (Nasdaq: WABC), Western Digital (NYSE: WDC), WSI Industries (Nasdaq: WSCI), and Yahoo! (Nasdaq: YHOO).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Home Builder Confidence Gains in October 2010

Surprise, surprise, home builder confidence is on the rise. The National Association of Home Builders (NAHB) reported today that its October measurement of the Housing Market Index (HMI) showed improvement.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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Home Builder Confidence Gains in October

Before you get too excited and begin construction on your lot, it's important to note that the October increase came off record low sentiment levels. In fact, the three point gain in the Housing Market Index, to 16, marked the first such rise in five months, and takes it to a point last seen in June.

June is when the First-Time Homebuyers Tax Credit expired (though the settlement deadline was extended to September). The credit acted as a stimulus for real estate activity, and could have borrowed some from the months that immediately followed its expiration. Thus we could simply be seeing a normalization to a still stale state of activity.

That said, the direction of change is welcomed, though housing investors didn't think much of it. Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV) and D.R. Horton (NYSE: DHI) shares were unchanged on the day. Still, NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Michigan said:

"Builders are starting to see some flickers of interest among potential buyers, and are hopeful that this interest will translate to more sales in the coming months. However, because most builders still have no access to credit for building homes, there is a real concern that we will not be able to meet the pent-up demand when consumers are ready to get back in the market. This problem threatens to severely slow the housing and economic recovery."

Take note, because what you have just received from Mr. Jones was some industry insight that might help your investment strategy. If small builders are unable to access credit markets when housing eventually recovers, then the public companies that operate in the field will have market share opportunities open up to them. They will be able to leverage leverage, or the lack of it, and gain ground over their smaller competitors. It's an advantage they already had, but apparently it will play more prominently as growth renews in this cycle (someday).

The NAHB Chairman repeated words The Greek published this morning regarding the difficulty consumers are also having gaining access to credit, which runs counter to the Fed Chairman's statement on improving conditions. Mr. Jones said this was the most critical obstacle for real estate now, which is saying something given all the formidable obstacles that stand before housing: foreclosure flow & scandal; unemployment; and economic uncertainty.

Still, record low mortgage rates may finally be at a point capable of luring some into an open house. According to this biased organization (the NAHB), foot traffic improved this month. Specifically, the HMI's component indexes all gained in October. The index gauging current sales conditions rose three points to 16, while the index gauging sales expectations in the next six months rose five points to 23, and the index gauging traffic of prospective buyers rose two points to 11. Builder confidence also improved across each measured region in October. The South and West posted four-point gains a piece, to 18 and 12, respectively, while the Northeast and Midwest each took back a single-point, to 17 and 13, respectively.

It's not much to write home about, or to the blogosphere, but given last week's refinancing spike, this adds to evidence that record low mortgage rates might finally be pulling people in. Beneficiaries should eventually include the banks that are doing this business, along with home builders eventually, but not today.



Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Tasty Baking (Nasdaq: TSTY), Pep Boys (NYSE: PBY), SEI Investments (Nasdaq: SEIC), GSI Commerce (Nasdaq: GSIC), Comcast (Nasdaq: CMCSA), DuPont (NYSE: DD), Tyco Electronics (NYSE: TEL), Lincoln National (NYSE: LNC), Campbell Soup (NYSE: CPB), Cigna (NYSE: CI), AmeriSource Bergen (NYSE: ABC), Sovereign Bancorp (NYSE: SOV), FMC Corp. (NYSE: FMC), Ametek (NYSE: AME), Sunoco (NYSE: SUN), Urban Outfitters (Nasdaq: URBN).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

The Fed & Bernanke's Economic Delusion

Bernanke's Vision

Federal Reserve Chairman Benjamin Bernanke delivered an important speech Friday. It was highly anticipated and critically important in the minds of market soothsayers. In the end, Bernanke did not really have much to say with regard to an imminent employment of quantitative easing measures. However, what he did have to say about the current state of economic affairs and the view he and the Fed have of the future troubled me greatly.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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The Fed & Bernanke's Economic Delusion

Fed Chairman Bernanke and Treasury Secretary Geithner reintroduced uncertainty into the market equation Friday. A slew of economic data hit the wire Friday morning, including a planned address by the Fed Chairman on the prospect of quantitative easing. However, the Chairman's speech seemed to work more towards preparing the market for what it already expects, than it did toward giving it what it wants.

Retail sales data for September proved stronger than expected, and inflation remained tame, so stocks sprinted into the open. However, it feels as though the delay in Treasury Secretary Geithner's report on our foreign trading partners, especially China, has kept fear alive in the hearts of traders. Geithner's delay certainly implies a harsh but true description of China's foreign currency manipulation could be due, though it is clearly not preferred by the government. The potential repercussions of this possibility has traders and investors of all sorts uncertain, and uncertainty acts as a weight on stocks.

Bernanke's Address

The Chairman's speech did not offer the rescue ship the investment community was counting on, but he said it was in nearby port if need be. He began by reassuring the community that the economy is still on pace for growth, with the "preconditions for it in place." He voiced expectations for moderate growth as time progressed.

The speech itself was intended to target the topic of monetary policy in a low inflation environment, and so the Chairman discussed the many nuances and difficulties in his current work. Indeed, while lowering the Fed's target rate to spur the economy, he would like to also see the bond market avoid disaster and equity values find further supports. While the Fed's mandate does not target stocks nor bonds, the economic play of the two is of course still important for consideration. And so, a little bit of inflation is now regarded a desirable spice for the economic gourmet. Bang!

What got me fired up to write this critical review of the Fed and Bernanke's economic vision is the deluded view the economic minders seem to have. The Fed has been one of the poorest forecasters of economic developments in recent times. After all, it failed to see the housing bubble it was building with its low rate policy. However, when cornered, Alan Greenspan will point to crooked mortgage brokers and greedy banks as the culprits. In more recent times, the latest Fed Chairman publicly stated that the mortgage and real estate crisis would be contained within the industry it served. That was a troubling failure of vision, and the disaster spread into a global financial crisis of fathomable (not by the Fed though) proportions. Or perhaps, US government advisors asked the Chairman to refrain from yelling "fire" in the theater… though flames were spreading at the time.

Once again, the Fed seems to have its blinders on, as the Chairman's speech was full of deluded impressions of the current economic environment. Hey, I'm not apologizing for telling the truth. This type of writing is why I have a following. It is because of our willingness to tell the story that bank and other institutionally paid economists and strategists are too afraid to tell. That's because it might lead you to take your capital out of the hands of their portfolio management team, and cost them their jobs.

Bernanke said that household spending should benefit from stronger household finances, further easing of credit conditions, and pent-up demand for consumer durable goods. I have issue with this statement.

Inadequate Income

The unemployment benefit compensation and emergency part-time work 17% of Americans find themselves surviving on now, are not likely strengthening their household finances. In fact, overleveraged Americans would be lucky if their income resources were even enough to stop the bleeding of their money. Under the illusion of continual employment and eventual prosperity, we have purchased homes, automobiles and all sorts of things we thought we needed with credit, and those payments likely now exceed the income generated by government supports and through the bussing of tables. Thus, can we really say household finances have strengthened? It's more like American families are facing a harsher reality day by day.

Unsteady Housing & Assets

Home prices look about ready to slip again, and without economic growth, equities might not even hold their ground, let alone appreciate further. So, with the wealth effect reversed, can we say household finances have strengthened, or that even the perception of household wealth has improved?

Credit Fallacy

Bernanke also stated that further easing of credit conditions were an aid to the consumer. So, why then does consumer credit contract almost each and every month it is reported? Credit has not eased, or else record low mortgage rates would be spurring the real estate market. Instead, underwater mortgages that near or exceed the value of the properties they stand against, and poorly rated credit risks (people), cannot even refinance their current loans, let alone buy a new one or purchase one for junior. Furthermore, banks have come under high scrutiny and broad regulation, so find me a banker these days who will go out on a limb now. I think they are as scarce as the pheasant are in my Pennsylvania hunting grounds.

Hopeful Demand

Thirdly, Bernanke talks about pent-up demand for household durables. You know, I think poor folk just call that wishing, and go on washing their clothes the old fashioned way. If the washing machine is broke, but Joey is still sitting idle, well than Susan will be washing the clothes in the bathtub. That is not pent-up demand; that's surviving, and nothing is going to lead a family without means to buy that new machine except a new job. Even then, the machine won't come until the refrigerator is full, the bills are caught up and some savings put in place. Pent-up demand? I call that wishing, because without a job, there will be no release of demand.

Greed is Good in the Corporate HQ

Bernanke says that similarly business investment in equipment and software should be driven rapidly by rising sales, the need to replace old equipment, strong balance sheets and low financing costs. In the case where the equipment is necessary for the generation of sales, it will be replaced and upgraded. But, you can count on corporate masters, those being you and me the shareholders, to demand EPS and dividends before new desks for the cubicle impaired. This is capitalism, where stocks are rewarded for making higher profits, not for making employees feel like human beings. Face it! That's the way you like it, so stop turning your eye from it. And don't be so surprised when you hear about some loose cannon doing in all his supervisors one angry afternoon. That said, I would still rather be working in a cubicle in Jersey City than in a sweat shot in Bangalore.

Companies will Acquire One Another

So I say don't look for "rapid" spending from corporations, except in the acquisition of each other. There will be more of that use of the over-cashed balance sheets than there will be of the addition of Windows 8 and the new desk machine with the paper thin monitor. Oh, and after these companies acquire one another, they go about the business of creating synergies, which usually includes the laying off of redundant responsibilities and the poor saps who fill them. Thus, that would seem to weigh against economic growth, and certainly against employment in the near-term. The long-term might offer another sunny story, but don't look for companies to place spending above higher profits, because this ain't heaven.

Also, low financing also goes a long way toward paying out dividends. It has been figured out long ago that a good bit of leverage adds value to an organization, when it is manageable. A low cost of capital, certainly creates economic value; but how will that economic value be distributed? So who gets richer? That's right, the rich. That is especially true now that the little guy has been near permanently scared out of the stock market. Hey, but it's a good thing right? After all, without the rich building companies, the little guys would not have work. I'm being cynical, in case you’re blind. Trickle down should not translate into look down, or beat down. History shows us that mindfulness of the peasants plays smartly too, since the masses are made of them (read us). In case you haven't noticed, we're growing restless. Meanwhile, bank managers paid back the government at the cost of equity holders so that they could pay themselves bonuses. Hey, Fed-provided liquid capital markets and solvency served them well.

Public Sector Farce

The Chairman says that the public sector is improving as well. He says tax receipts in state and local governments have started to recover, which should allow their spending to rise gradually. He says the contribution of federal stimulus to overall growth should decline at a pace that does not derail economic activity. Woe there horsey!

Since when have tax receipts improved? In New York City, we are seeing more crime in unattended subway stops, fires burning longer due to greater distances for scarcer firemen to travel, and even less charitable contributions to the stubbornly needy who refuse to leave Utopia like the mayor might prefer. Yet, major extraordinary projects like the second avenue subway and the new tunnel from Jersey somehow survive these tough times? Oh well, I guess that's thanks to poor Benjamin, who gives an arm each day to the MTA in order to travel into the city to make some money serving people. Hogwash Bernanke! Hogwash! You should have been with me the other night sitting with a hobo, once a handyman, in a coffee shop until two in the morning, so they would not kick him out into the rain, where nobody would find him until he had been long dead, since those jobs have been shed too.

As far as the government stilts being slowly taken away as to avoid derailing the economy:

Well, the Chairman must bed early, because he seems to be missing the political campaign that clutters the airwaves. It harps on wasteful spending and fiscal prudence, and it scares even those bold enough to consider change from changing the tax code for the rich. The wealthy are not putting those costly (to us) dollars back to work in the economy, as one might hope. That's because they don't need another yacht as badly as we need another loaf of bread. Democrats need to drum up one more ounce of courage before their party ends, and allow the Bush tax cuts to expire on income earned above $250K. At least address the higher end, with consideration for small businessmen. Why can't we let them expire on the super-wealthy, and pass a new bill at the same time, giving tax breaks to small businessmen earning up to a million? Why hasn't a compromise come about!!!? It's because politicians care more about their seats in DC than they do about you and me.

I also believe the Chairman must have missed the fact that housing is about to double-dip in the absence of the homebuyers' tax credit. Cash-for-Clunkers was a hit too, but I don't see car sales running near 14 million today with it gone. And some of these government aids were corrupted along the way, and so efforts to keep people from devastating foreclosure instead allowed predators to misguide and steal from the needy.

Foreign Trade Supports?

Doesn't Bernanke hang out with Geithner anymore, since the G-man moved on to head the Treasury? Otherwise, why would the Chairman include continued support from our foreign trading partners as a catalyst for growth, given Geithner's engagement of China on the yuan. There's no guarantee when it comes to the Chinese; there's a reason we've been so cautious to begin with.

A Hint of an Idea

Finally some sobriety, as the Chairman addressed the modest economic growth he sees, and the jobless recovery it entails. And so, further monetary stimulus remains under consideration. He did not say much more than before, in repeating that the Fed is considering expanding its stake in long-term securities. Did you note though, that the Chairman used the qualifier "if warranted?" This suggested that QE2 is by no means a done deal. Lest we remind you that the market thinks it is, and that a letdown seems in store in one way or another.

A Shotgun of a Tool to Use

Empirical evidence suggests QE2 should act as effective economic stimulus, we agree. But Bernanke warned that we have little experience in this means of action, and so we translate to read, we might overshoot. The risk of this is that our conservative Fed might err greatly with its new weapon and unleash an uncontainable virus upon us all by charging the economy up and inflation out of control. This is why many Fed members are openly talking about a careful ratcheting up of quantitative easing. While this makes sense, it also seems to offer the risk of adding less than enough boost to the economic engine.

Either way, we see volatility increasing and uncertainty overwhelming the market, which is bad news for stocks. Only the economic life we pursue can rescue us, and perhaps this can only come naturally and with time, or by means of further creative thinking. Maybe quantitative easing will work, and maybe it will not. One thing is certain, that man will go on making monsters and monstrous mistakes. It's all we can do to try. I've been critical of the Fed today, but I've also been supportive of it in the past. We call it like we see it.



(Article should interest: NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, Nasdaq: NDAQ, NYSE: ICE, Nasdaq: SERAX, Nasdaq: SERBX, Nasdaq: SERCX, Nasdaq: SERNX, Nasdaq: FEUFX, Nasdaq: FEEEX, Nasdaq: FAEAX, Nasdaq: FBEAX, Nasdaq: FIEUX, Nasdaq: FECAX, Nasdaq: IERAX, Nasdaq: XRNEX, Nasdaq: PBEUX, Nasdaq: UEPIX, Nasdaq: UEPSX, Nasdaq: PEUGX, Nasdaq: RYAEX, NYSE: CEE, NYSE: RNE, NYSE: PEF, NYSE: GUR, NYSE: EPV, NYSE: VEA, NYSE: DFE, NYSE: DEB, NYSE: IEV, Nasdaq: ANEFX, Nasdaq: CNGAX, Nasdaq: HNEAX, NYSE: BAC, NYSE: GS, NYSE: AIG, NYSE: WFC, NYSE: MS, NYSE: C, NYSE: DB, NYSE: CS, NYSE: UBS, NYSE: FNM, NYSE: FRE, NYSE: MCG, NYSE: MCO, NYSE: TD, NYSE: PNC, NYSE: STD, AMEX: GLE, NYSE: BCS, NYSE: GLD, NYSE: XLE, NYSE: XLF, NYSE: BJV, NYSE: SZI, NYSE: BPD, NYSE: IEL, NYSE: PBN, NYSE: CGW, NYSE: LVL, NYSE: FRI, NYSE: PBP, NYSE: RSU, NYSE: RMM, NYSE: REA, NYSE: RFL, NYSE: RHM, NYSE: RTG, NYSE: RSW, NYSE: RMS, NYSE: REC, Nasdaq: PDOWX, Nasdaq: XDPOX, Nasdaq: XDPDX, Nasdaq: NDUAX, Nasdaq: NDUBX, Nasdaq: IDJAX, Nasdaq: NJCRX, Nasdaq: UDPIX, Nasdaq: UDPSX, Nasdaq: UWPIX, Nasdaq: RYLDX, Nasdaq: RYIDX, Nasdaq: RYCWX, Nasdaq: ONEQ, Nasdaq: QCLN, Nasdaq: QQEW, Nasdaq: QQXT, Nasdaq: QTEC, Nasdaq: NASDX, Nasdaq: NDXKX, Nasdaq: POTCX, Nasdaq: DXQSX, Nasdaq: DXQLX, Nasdaq: FNCMX, Nasdaq: INQAX, Nasdaq: MOTAX, Nasdaq: XQQQX)

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